Message from DEP Secretary Chris Abruzzo

It is hard to imagine that less than five years ago, most Pennsylvanians were unfamiliar with terms such as “Marcellus Shale” and “hydraulic fracturing.” Today, most of us are not only familiar with these terms, but many have witnessed the steady transformation of this state into the second largest natural gas producing state in the nation. We are in the midst of an energy revolution that is bringing new jobs to Pennsylvania, spawning new economic development

and growth, and providing energy security to our nation. At DEP, we are at the forefront of this revolution, charged with ensuring that this vast energy resource is produced in an environmentally responsible manner. Since joining the Pennsylvania Department of Environmental Protection (DEP) in April 2013, I have met with staff from across the agency to review our programs and identify ways in which we can perform our mission better. I am pleased to work alongside so many dedicated public servants who care about our environment and utilize their problem solving skills to protect our environment and facilitate responsible development across Pennsylvania. We are one DEP…. as such, it is our collective mission to protect Pennsylvania’s air, land and water from pollution and to provide for the health and safety of our citizens. We are to guarantee that all Pennsylvanians, including future generations, have a safe, healthy environment. We are to work as partners with individuals, organizations, governments and businesses to achieve a balance in preventing pollution and restoring our natural resources, while carrying out these responsibilities in a fair and timely manner that respects both the environment and the regulated community, and is deserving of the public’s trust. I hope you find this 2013 Oil and Gas Annual Report to be informative and insightful about DEP’s Oil and Gas Program and how we are fulfilling our mission. This report provides information about how we authorize and inspect oil and gas exploration and production operations in the commonwealth. You will also learn about innovative approaches that have been implemented by DEP and get a glimpse of what to expect during 2014. Calendar year 2013 was a productive one and DEP continues to build on our past accomplishments to achieve even greater successes during 2014! Enjoy, E. Christopher Abruzzo Secretary

1 | P a g e

Table of Contents: Pennsylvania’s Energy Landscape .................................................................................... 2 Advancing Our Energy Security ........................................................................................ 3 DEP’s Mission .................................................................................................................. 4 DEP’s Structure ................................................................................................................ 5 DEP’s Oil and Gas Program - A World Class Leader ........................................................... 6 Pennsylvania’s Shale Plays ............................................................................................... 7 Permitting ....................................................................................................................... 8 Inspections ...................................................................................................................... 19 Compliance and Enforcement .......................................................................................... 20 Stray Gas Investigations................................................................................................... 21 Regulatory and Policy Development ................................................................................ 24 Innovations ..................................................................................................................... 27 What’s new for 2014? ...................................................................................................... 28 A Culture of Continuous Improvement ............................................................................. 31 Disclaimer: The information contained in this report is based on the data contained in DEP information systems at the time of the publication of this report, including, but not limited to, the department’s enterprise-wide permitting and compliance database called eFACTS (Environment Facility Application Compliance Tracking System). As some data contained in these systems are self-reported by operators and other permitees, data in this report reflects the data as reported to the department.

2 | P a g e

PENNSYLVANIA’S ENERGY LANDSCAPE:

The exploration and production of energy sources is not new to Pennsylvania. In fact, the first

commercial oil well was successfully drilled in 1859 by Edwin Drake in Titusville, Pennsylvania.

This was the birth of what was to become the nation’s petroleum industry.

During the late 1800s, Pennsylvania was the nation’s leading producer of crude oil with

production levels peaking in 1891 at approximately 31 million barrels; about 58 percent of the

nation’s total oil capacity. By the early 1900s, major oil fields were discovered in Texas,

Oklahoma and California that shifted exploration and production activities to the mid-west and

western portions of the country. Pennsylvania’s crude oil production quickly waned as

exploration and production of new oil fields opened up in other parts of the country.

As conventional oil reserves in Pennsylvania became less productive, new techniques and

practices were used to “flood” unproductive wells with surface water to push oil to the surface.

Although the productivity of oil wells in Pennsylvania continued to decline throughout the

remainder of the 20th century, conventional oil reservoirs in the state continued to yield a

sufficient volume of oil to support a viable oil industry. During 2013, almost 5 million barrels of

crude oil were produced in Pennsylvania.

In addition to historic oil reserves, Pennsylvania has also been a source of natural gas for well

over a century. Although natural gas was routinely encountered by early oil developers, it was

initially considered to be more of a nuisance than a resource. As methods improved for

capturing, transporting and using natural gas, a modern natural gas industry began to emerge.

It was long suspected that deposits of natural gas existed within vast tight shale formations

deep under Pennsylvania’s surface; however, conventional extraction methods were not able to

effectively unlock the natural gas from its source and the actual quantities were not well

understood.

Today, these black shale deposits are called “shale plays” and are referred to by their geological

naming conventions such as the “Marcellus Shale” play and the “Utica Shale” play. The term

“unconventional” refers to these same shale formations that utilize horizontal drilling methods

and hydraulic fracturing techniques to break up the shale rock to allow the natural gas that is

trapped within the target formation to flow more freely to the well bore.

It was not until recently that effective drilling and hydraulic fracturing techniques could be

successfully and economically deployed to capture natural gas from these shale deposits. In

2004, the first unconventional natural gas well was developed in Pennsylvania and positive

results led to additional unconventional wells being constructed. Within several years, a

renaissance in natural gas production emerged in Pennsylvania making it a dominant supplier of

natural gas to the nation. The successful production of unconventional resources such as the

3 | P a g e

“Marcellus” and “Utica” shale plays are transforming not just the United States, but indeed the

world.

In Pennsylvania, natural gas operators are reporting increased production rates that are

expected to rise over the coming years. In 2013, Pennsylvania produced over 3 trillion cubic

feet of natural gas.

ADVANCING OUR ENERGY SECURITY:

Today, much of the nation’s oil production occurs in states such as Texas, North Dakota,

Oklahoma, California and Alaska; however, Pennsylvania’s conventional “oil patch” in the

northwest corner of the state continues to yield crude oil. Since this crude oil is paraffin-based,

it is renowned for its lubricating qualities and is used in the manufacture of petroleum

lubricants such as motor oils and as an ingredient in consumer products such as cosmetics,

ointments and lotions. Pennsylvania’s oil producers typically use conventional drilling methods

that have not changed much over the past century to capture this resource.

Since 2008, Pennsylvania’s natural gas production has increased exponentially as a result of

unconventional drilling techniques including hydraulic fracturing and horizontal drilling. This

increasing trend in shale gas production is resulting in energy security that translates to

national security in the form of less dependence on fossil fuels from other parts of the world.

Increased shale gas production has resulted in a number of significant benefits including less

expensive energy costs and improvements to Pennsylvania’s air quality as a result of the

increased use of cleaner burning natural gas.

0

200,000,000

400,000,000

600,000,000

800,000,000

1,000,000,000

1,200,000,000

1,400,000,000

1,600,000,000

1,800,000,000

Jan-Jun 2011 Jul-Dec 2011 Jan-Jun-2012 Jul-Dec-2012 Jan-Jun-2013 Jul-Dec 2013

Unconventional Shale Well Gas Production (MCF) 2011-2013

4 | P a g e

Pennsylvania’s legislature passed several significant amendments to the state’s oil and gas laws

with Act 13 of 2012. This law, for the first time, included an “impact fee” that is paid for by the

natural gas industry to offset the costs of the impacts to local communities and counties where

natural gas drilling occurs. During the past three years, more than $630 million has been

collected by the commonwealth and these monies have largely been allocated to

Pennsylvania’s counties and municipalities, in addition to providing funds to support state

agencies and organizations that oversee natural gas drilling activities in Pennsylvania. DEP

receives $6 million annually in new revenue from the impact fee.

Pennsylvania’s natural gas reserves are significant compared to other shale gas plays across the

country; however, it is not a limitless resource nor is it the only energy resource on which this

nation relies. Currently, there is no single energy source that can solely meet the energy

demands of the United States, let alone the entire world. Although the production of oil and

natural gas provides tangible benefits, it must be done in a way that is protective of

Pennsylvania’s citizens and the environment.

DEP’s MISSION:

The mission of the Department of Environmental Protection (DEP) is “to protect Pennsylvania's

air, land and water from pollution and to provide for the health and safety of its citizens

through a cleaner environment. We will work as partners with individuals, organizations,

governments and businesses to prevent pollution and restore our natural resources.”

DEP plays a vital role in the comprehensive oversight and regulation of the oil and gas industry

in Pennsylvania. Although there are some related federal statutes that affect the oil and gas

industry, most laws and regulations that pertain to the oversight and regulation of the oil and

gas industry in Pennsylvania reside at the state level.

In Pennsylvania, DEP is the primary agency that is responsible for issuing permits that are

required prior to the construction and operation of oil and gas wells; and DEP is the primary

agency responsible for inspections at well sites. There are other agencies and organizations in

Pennsylvania that are responsible for various other roles – including the Pennsylvania Public

Utility Commission (PUC), the Department of Conservation and Natural Resources and regional

river basin commissions to name a few. However, DEP is the primary state agency that is

responsible for regulating the construction of well sites and conducting regular inspections to

ensure that well sites are operated in a manner that is safe for Pennsylvania’s citizens and

protective of the environment.

PUC and the Federal Energy Regulatory Commission (FERC) also play an important role in terms

of inspections of natural gas transmission pipelines in Pennsylvania. Although DEP is

responsible for inspections of the construction of natural gas “gathering” lines, PUC is

responsible for safety inspections of intrastate natural gas transmission lines that carry natural

5 | P a g e

gas to local markets, and FERC is responsible for inspections of interstate natural gas

transmission lines that move natural gas to regional and national markets.

DEP’s STRUCTURE:

The Office of Oil and Gas Management was established as a result of the departmental

reorganization in 2011 and, for the first time, the Bureau of Oil and Gas Management was

elevated to a deputate-level

program. The current organization

chart for the Office of Oil and Gas

Management is depicted to the

right.

DEP’s Office of Oil and Gas

Management employs 202

individuals of which approximately

80 percent of are assigned to

engineering, scientific or

permit/inspection-related work

and the remaining 20 percent

provide administrative, legal and clerical support. The office consists of two overarching

bureaus. The Bureau of Oil and Gas Planning and Program Management is located in central

office (Harrisburg) and is responsible for the administrative, policy and regulatory development

functions. The Bureau of District Oil and Gas Operations consists of three district oil and gas

offices and is responsible for all permitting, inspection, compliance and enforcement functions.

The Bureau of Oil and Gas Planning and Program Management includes the following three

divisions:

Well Development and Surface Activities – This division is responsible for developing policies

and guidance related to surface activities associated with oil and gas well site design and

construction. This includes engineered well pad components such as erosion and sediment

control structures, pits and impoundments. Staff in this division advise district permitting

and inspection staff to ensure that best management practices and controls are

implemented on wells sites to reduce and minimize surface erosion from entering the

state’s waterways.

Well Plugging and Sub-Surface Activities – This division consists of the Subsurface Activities

Section and the Well Plugging Section. The Subsurface Activities Section is responsible for

the management of subsurface oil and gas related program services and activities and offers

expertise in the subjects of drilling, casing, cementing, completion, stimulation, workover,

and production activities and operations associated with conventional and unconventional

6 | P a g e

hydrocarbon formations in Pennsylvania. The Well Plugging Section maintains and

implements the successful Orphan and Abandoned Well Plugging Program.

Compliance and Data Management – This division works closely with DEP’s Bureau of

Information Technology to oversee the operation and maintenance of data management

systems and databases that track production data that is submitted by the regulated

community. This division also runs weekly workload analysis reports, develops interactive

reporting tools, prepares statistical and graphical analyses, and maintains the oil and gas

website.

The Bureau of District Oil and Gas Operations includes three district offices that implement the

operational programs in the Eastern, Northwest, and Southwest areas of the Commonwealth.

Staff in the district offices conduct the functions of permitting, inspections, compliance and

enforcement and are based in Williamsport, Meadville and Pittsburgh. Several small field

offices are located in each of the district geographic areas to enable DEP to more effectively

implement its inspection and compliance programs and oversight of the regulated community.

DEP’s OIL AND GAS PROGRAM - A WORLD CLASS LEADER:

Pennsylvania is recognized nationally and internationally as having successfully developed a

regulatory approach that both protects its environment and citizens while also providing for

optimal development of oil and gas resources. Over the past several years, representatives and

officials from many countries around the world have traveled to Pennsylvania to meet with

DEP’s Office of Oil and Gas Management to learn more about its programs and practices.

7 | P a g e

Closer to home, DEP’s regulatory approach has served as a model to other state environmental

agencies as well. In May 2013, the State Review of Oil and Natural Gas Environmental

Regulations, Inc. (STRONGER) conducted a programmatic and regulatory review of DEP’s Oil

and Gas program. STRONGER is a non-profit, multi-stakeholder organization whose purpose is

to assist states in documenting the environmental regulations associated with the exploration,

development and production of crude oil and natural gas. The organization shares innovative

techniques and environmental protection strategies and identifies opportunities for program

improvement. The state review process is a non-regulatory program and relies on states to

volunteer for reviews.

On Sept. 20, 2013, STRONGER published the results of its most recent independent peer review

of DEP’s oil and gas regulatory program at www.strongerinc.org and found it to be proficient

and ready to address the increase in oil and gas operations in Pennsylvania. This represents the

fifth review of Pennsylvania's oil and gas program since 1990.

STRONGER recognized the following actions taken by Pennsylvania’s Oil and Gas program to

strengthen the following key areas:

Increased staff levels to address additional permitting, inspection and enforcement

activities related to increased unconventional gas well development;

Expanded the program’s public participation activities associated with the abandoned

well sites program;

Initiated a comprehensive evaluation of radiation levels specifically associated with

unconventional gas development, the first of its kind in the nation;

Mandated that operators performing earth disturbance activities associated with oil and

gas activities develop and implement erosion and sedimentation control best

management practices to minimize the potential for erosion and sedimentation; and

Advanced its hydraulic fracturing program and required that well operators conducting

well casing and cementing to maintain control and prevent migration of gas or other

fluids into sources of fresh groundwater.

PENNSYLVANIA’S SHALE PLAYS:

Unconventional shale basins are commonly characterized according to the geologic formation

that serves as the source of its shale gas. The term “shale play” is used by the oil and gas

exploration and development industry to identify areas of shale basins that appear to be

particularly suitable for shale gas development. The current predominant shale play in

Pennsylvania is the “Marcellus Shale Play;” however, interest is beginning to increase in the

exploration and production of the “Utica Shale Play” that lies well below the Marcellus Shale

Play. There are other less familiar shale plays in and around Pennsylvania including the

8 | P a g e

Rhinestreet, Huron and a collection of less extensive formations that comprise the Upper

Devonian shale formation.

The type of gas found in most areas of the Marcellus Shale Play throughout Pennsylvania is

geologically mature and consists of mostly methane that requires little processing prior to use.

This gas is commonly called “dry gas.” Marcellus shale gas found along the westernmost border

of Pennsylvania is less geologically mature; therefore, in addition to methane, the gas contains

additional hydrocarbons such as ethane, propane and butane. This gas is commonly called “wet

gas” and can be used to produce plastics and other high value petroleum-based products. Given

the current spot market price of petroleum feedstocks, the value of wet gas is significantly

more valuable than dry gas.

Although the Marcellus Shale Play overlies the Utica Shale Play, both stretch from the eastern

portions of Ohio and West Virginia through the southwest to northeast corners of Pennsylvania

and terminate in southern New York State.

PERMITTING:

The Office of Oil and Gas Management is responsible for the review of all permit authorizations

related to the construction of oil and gas wells and development of the sites on which they are

Map depicting Unconventional Shale Plays in the Northeast

9 | P a g e

constructed. Although there are many types of permit authorizations that are issued by

permitting staff within the Office of Oil and Gas Management, the two permits that are most

commonly issued by DEP include the “Erosion and Sediment Control General Permit–2” and the

“Drill and Operate a Well” permit (commonly called the Well Drilling Permit). Although not

technically a permit, the Office of Oil and Gas Management also operates a well plugging

program that requires entities that intend to plug an orphaned or abandoned well to submit

formal notification to DEP. Due to its significance, a summary of DEP’s well plugging program is

included in this section along with a description of the Erosion and Sediment Control General

Permit–2 and the Drill and Operate a Well permitting programs.

Erosion and Sediment Control General Permit-2 (ESCGP-2)

The Erosion and Sediment Control General Permit-2 (ESCGP-2) is designed to address earth

disturbances at oil and gas sites where more than 5 acres of land are disturbed. This general

permit is typically used to authorize an operator to construct unconventional gas well pads and

associated pipelines, retention basins, pits and impoundments.

On Dec. 29, 2012, the department published as final, the ESCGP-2 and revisions to the “Policy

for Erosion and Sediment Control and Stormwater Management for Earth Disturbance

Associated with Oil and Gas Exploration, Production, Processing, or Treatment Operations or

Transmission Facilities” (hereafter, stormwater policy). The ESCGP-2 permit and associated

stormwater policy were developed concurrently and incorporated significant stakeholder input

that was received during 2012. The ESCGP-2 permit was developed to replace Erosion and

Sediment Control General Permit–1 (ESCGP-1) that expired on April 12, 2013. The revisions to

the stormwater policy were the first since July 2003 and were intended to address the type and

scope of oil and gas activities currently occurring in Pennsylvania. Industry training related to

the new permit and stormwater policy was held throughout 2013.

The standard permit review timeframe for an ESCGP-2 permit is 43 business days. DEP offers an

expedited review process whereby a permit decision can be reached in 14 business days

provided the project achieves the permit standards and ensures protection of the environment.

In certain situations, such as when a well site is in close proximity to high quality or exceptional

value waters, the expedited review process is not available to the permit applicant.

In 2013, DEP issued 287 ESCGP-1 permits and 460 ESCGP-2 permits. Since 2013 was the first

year that the ESCGP-2 permit was created and in use, the department will evaluate the long-

term permit trends as more information becomes available.

Drill and Operate a Well Permit

As the name implies, the Drill and Operate a Well Permit (aka, well drilling permit) authorizes

an operator to construct and operate a conventional or unconventional well. An

unconventional well site and well pad is typically constructed to accommodate multiple wells.

10 | P a g e

An operator is responsible to obtain an individual permit for each well that is constructed. A

Drill and Operate a Well Permit must be submitted to DEP for each additional well that is

intended to be drilled on the well pad or when an existing well is drilled deeper into a geologic

formation. The Oil and Gas Act requires DEP to render a permit decision within 45 calendar

days of receiving a complete application.

Distribution of Well Drilling Permits issued in Pennsylvania

In 2013, DEP issued a total of 4,617 well drilling permits to include both conventional and

unconventional wells in Pennsylvania. Of this amount, DEP issued 2,965 well drilling permits for

the construction of unconventional wells and 1,652 well drilling permits for the construction of

conventional wells.

The graph below shows the total number of conventional and unconventional well drilling

permits issued by DEP since 2008. As evidenced in this graph, the number of well drilling

permits issued by DEP has been trending downward since 2008. This downward trend is likely a

result of the industry’s reaction to the declining market price of natural gas during this same

timeframe as well as more efficient planning of well site locations by operators. As the market

price of natural gas began to rebound during 2013, there was a slight increase in the number of

permits received and issued by DEP as evidenced in the graph below.

Unconventional Well Drilling Permits

The geographic region of the state where operators have obtained well drilling permits to

construct unconventional wells generally correlates to the locations of the unconventional

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2008 2009 2010 2011 2012 2013

Conventional and Unconventional Well Permits Issued (by year)

Conventional Permits Issued Unconventional Permits Issued

11 | P a g e

shale plays. That being the case, not all locations within the unconventional shale plays are

equal in terms of the volume of available gas or the productivity of the wells that are

constructed.

The map below identifies the distribution, by county, of the 2,965 well drilling permits issued in

calendar year 2013 for the purpose of constructing unconventional gas wells.

During 2013, the top ten counties with the highest number of unconventional permits issued by

DEP include:

County Number of Unconventional Permits Issued

Susquehanna 557

Bradford 455

Washington 414

Lycoming 325

Greene 259

Butler 160

Wyoming 136

Tioga 88

Armstrong 62

Sullivan 58

Map depicting distribution of permits issued for unconventional wells (2013)

12 | P a g e

Conventional Well Drilling Permits

The map below identifies the distribution, by county, of the 1,652 well drilling permits issued in

calendar year 2013 for the purpose of constructing conventional oil and gas wells.

As evidenced in the map, the majority of all well drilling permits for conventional well sites

were issued to operators in McKean, Warren and Venango counties since this area represents

the area commonly called the “oil patch” region of the state where Pennsylvania Grade crude

oil is most prevalent.

During 2013, the top ten counties with the highest number of conventional permits issued by

DEP include:

County Number of Conventional Permits Issued

McKean 445

Warren 427

Venango 310

Forest 276

Lycoming 32

Elk 29

Clarion 24

Butler 15

Crawford 15

Armstrong 13

Map depicting distribution of permits issued for conventional wells (2013)

13 | P a g e

Distribution of Wells Drilled in PA

In 2013, operators drilled a total of 2,174 wells in Pennsylvania, including both conventional

and unconventional wells. Of this amount, 1,207 are unconventional wells and 967 are

conventional wells.

The actual numbers of unconventional and conventional wells that are drilled in Pennsylvania

vary from the numbers of well drilling permits that are issued by DEP. One reason for this is that

a well drilling permit is valid for a full year and can be extended if requested and approved by

DEP. An operator may commence drilling at any time during the period that the permit is in

effect. Depending on individual business practices, oil and gas operators may secure a well

drilling permit far in advance of commencing actual drilling operations. In some cases, an

operator may also determine that a site is not suitable for drilling. Due to these reasons, it is

common that the number of permits issued by DEP exceeds the number of wells drilled in any

given year.

Unconventional Wells Drilled

The following map identifies the distribution, by county, of the 1,207 unconventional wells that

were drilled in calendar year 2013.

Map depicting distribution of wells drilled for unconventional wells (2013)

14 | P a g e

During 2013, the top 10 counties with the highest number of unconventional wells drilled in

Pennsylvania include:

County Number of Unconventional Wells Drilled

Washington 220

Susquehanna 207

Lycoming 166

Greene 117

Bradford 109

Butler 92

Wyoming 67

Armstrong 34

Tioga 30

Westmoreland 28

Conventional Wells Drilled

The following map identifies the distribution, by county, of the 967 conventional wells that

were drilled in calendar year 2013. Of all conventional wells drilled in Pennsylvania in 2013,

more than 86 percent were drilled in only four northwestern counties located in the “oil patch”

region of the state.

Map depicting distribution of wells drilled in PA for conventional wells (2013)

15 | P a g e

During 2013, the top 10 counties with the highest number of conventional wells drilled in

Pennsylvania include:

County Number of Conventional Wells Drilled

Warren 304

McKean 198

Forest 168

Venango 164

Elk 61

Crawford 13

Indiana 10

Clarion 10

Greene 9

Armstrong 6

Well Plugging Program

It is estimated that more than 350,000 wells have been drilled in Pennsylvania, since the drilling

of oil and gas wells began over a century ago. Some wells that are drilled produce oil and gas

for many years while other wells are found to be “dry” and do not produce enough oil or gas to

be profitable. All wells that are drilled must be properly plugged or sealed to ensure that

communication between deeper brines and hydrocarbons and fresh groundwater sources does

not occur.

Although stringent requirements currently exist regarding the proper methods to plug wells,

this was not always the case. In fact, it was not until the passage of the Oil and Gas Act of 1984

that laws and regulations were created to ensure the safe plugging of orphaned and abandoned

wells. Prior to the passage of modern oil and gas laws, wells were sometimes plugged using

crude techniques such as driving a wood log into a well; while, in other cases, wells were simply

abandoned and never plugged. Abandoned well locations sometimes exist in unlikely places

such as residential communities, rural and farm communities, cemeteries, parking lots, under

buildings and in rare cases even in streams. Today, stringent oil and gas laws and regulations

have been promulgated and require wells to be properly plugged when they are no longer able

to serve their intended purpose. Also, operators are now required to post bonds with DEP to

ensure that wells are properly plugged at the end of their useful life.

DEP tracks all known orphaned and abandoned wells; however, many thousands of wells

continue to exist and their exact locations may not be known. Currently, there are over

8,300 orphaned and abandoned wells that are known to exist and are on record with DEP; and

many of them are located in the northwest and southwest regions of the state where much of

the early oil and gas exploration and production occurred. To date, the Well Plugging Program

has plugged a total of 2,948 wells.

Typically, the Well Plugging Program issues between 10 and 14 new plugging contracts each

year. The individual contracts vary in size and include between one to more than 100 wells. In

16 | P a g e

2013, the Well Plugging Program issued 14 new well plugging contracts that resulted in the

plugging of 38 individual wells located in the following counties: Washington, Allegheny,

McKean, Venango, Potter, Jefferson, Elk, Erie and Armstrong. Of that total, 14 were oil wells,

eight were gas wells and 16 were combined oil and gas wells. The general locations of the wells

that were plugged in 2013 are displayed on the map below.

When a responsible owner is known to exist or is identified, they are legally responsible to plug

a well when it is no longer capable of effectively producing oil or gas as intended or after it has

been abandoned. In this case, the operator is required to submit a “Notice of Intent by Well

Operator to Plug Wells” form to DEP prior to plugging the well. After well plugging is

completed, a “Certificate of Well Plugging” form must be submitted to DEP by the operator.

When orphaned and abandoned wells are discovered and no responsible owner exists, those

wells are placed on the department’s list of orphaned and abandoned wells. DEP inspects each

newly-discovered orphaned and abandoned well and ranks and subsequently prioritizes all

wells. Prioritization is based on health and safety criteria, environmental degradation and other

potential impacts. Wells that present a high risk to human health and safety and the

environment are plugged first. DEP inspectors routinely follow up to ensure that all wells are

plugged in accordance with DEP’s regulatory requirements.

Funding for the Orphan and Abandoned Well Plugging Program is derived from surcharges

established by Section 3271 of the 2012 Oil and Gas Act. Well plugging contracts are funded by

permit surcharges that are collected separately from, and in addition to, the well drilling permit

application fee. The orphan well surcharge is $100 for an oil well or $200 for a natural gas well.

A separate additional abandoned well surcharge of $50 applies to both oil and gas wells. The

Orphan Well Plugging Fund and the Abandoned Well Plugging Fund are dependent on the

Map depicting distribution of wells plugged in 2013

17 | P a g e

number of new drilling permits submitted to DEP by oil and gas operators. In addition to these

fees, the Oil and Gas Act of 2012 allocated funding to the Commonwealth Financing Authority

for the purpose of administering a program that includes the plugging of wells.

Streamlining the Permitting Process

e-Well Permitting

The e-Well Permit is intended to streamline the oil and gas permitting process and convert DEP

paper-based permits to a fully online system that will include an electronic application,

electronic review and electronic permit issuance.

DEP’s Oil and Gas Program is the first permit program within DEP that has been migrated to an

electronic permitting platform and will result in the elimination of paper-based permit

applications, reducing processing and physical storage space requirements. This new tool will

also increase efficiency, improve data integrity, and improve DEP’s ability to more quickly locate

records and provide timely responses to Right-to-Know requests.

The e-Well permit was developed in-house in partnership with DEP’s Bureau of Information

Technology. Oil and gas operators utilize a secure web interface where they can create and

electronically submit a well permit application with supporting documentation and associated

supplemental permits. DEP staff now has the ability to review and route permits more

efficiently while seamlessly interacting with the department’s enterprise-wide permitting and

compliance database called eFACTS (Environment Facility Application Compliance Tracking

System).

A user/operator workgroup was identified in 2012 to provide input to DEP regarding early

design concepts. DEP convened a user workgroup of select oil and gas operators to conduct

beta testing in late August 2013. The user workgroup provided comments to DEP regarding the

use of the proposed e-Well application. Feedback from the user workgroup as well as ongoing

internal testing assisted in the refinement of the e-Well application. The e-Well Permitting

System went live Nov. 13, 2013 for the initial user workgroup to use and will be opened to all

operators in 2014.

Natural Gas Compression Facilities General Permit (GP-5 permit)

On Feb. 2, 2013, DEP finalized revisions to a general plan approval and general operating permit

for natural gas-fired engines, dehydrators, storage tanks and other equipment at natural gas

compression and/or processing facilities (aka, GP-5 permit). Compressor stations help move gas

from well sites into transmission pipelines. This revised general permit establishes

requirements for best available technology, authorizes the construction, modification and

operation of these natural gas facilities. These minor sources typically are not subject to major

source permitting requirements including Title V and New Source Review of the federal Air

18 | P a g e

Pollution Control Act. The new GP-5 permit was developed after considering public comment

and includes significantly lower allowable emission limits than the previous general permit. The

GP-5 permit imposes emission limitations that are 75 to 90 percent more stringent than

previously permitted emission limits for natural gas-fired engines used at compressor stations.

In addition to more stringent emission limitations, this general permit includes municipal

notification, source testing, recordkeeping and reporting requirements. Operators of facilities

authorized to use the GP-5 permit must demonstrate that their facilities continue to be minor

sources as defined by the Clean Air Act which allows for operational flexibility. In addition to the

air quality benefits, this general permit has streamlined the overall air quality permitting

process.

Air Quality Permit Exemption Criteria Modification

Since 1996, oil and gas well sites in Pennsylvania had been granted blanket exemptions from

obtaining air quality plan approvals and operating permits (i.e., Exemption Criteria Category 38

for Gas Well Sites). Given the recent expansion in natural gas exploration and production

activities in Pennsylvania this blanket exemption has been modified and on Aug. 10, 2013, DEP

finalized new exemption criteria. These criteria require actions to be taken that are more

stringent than the EPA’s standards for new emission sources and result in emission levels of

minor significance. If an owner or operator is unwilling to or cannot meet these criteria, they

must seek an air quality plan approval for construction of the well site from DEP.

Permit Review Process and Permit Decision Guarantee

On July 24, 2012, Gov. Tom Corbett issued Executive Order 2012-11 that required DEP to

implement a “Permit Decision Guarantee” by immediately:

Assessing how best to make timely permitting decisions;

Providing clear expectations for applicants to improve the quality of applications;

Establishing performance measures for review staff; and

Developing, improving and encouraging electronic permitting tools.

Executive Order 2012-11 also rescinded a 1995 Executive Order that established the original

Money Back Guarantee for permits.

Over the course of 18 months, DEP reviewed existing permitting procedures and developed a

draft “Permit Review Process and Permit Decision Guarantee” policy that was published for

public comment. The "Permit Review Process and Permit Decision Guarantee" policy, replaces

the former Money Back Guarantee policy. A separate "Permit Coordination Policy" was also

developed to direct how the department will review projects that require multiple permits from

DEP.

19 | P a g e

The department reported on Nov. 1, 2013 as part of its 4th Quarterly Report that 95 percent of

permits were issued within the guarantee timeframes according to the “Permit Review Process

and Permit Decision Guarantee.” It was further reported that the Office of Oil and Gas

Management increased its permitting efficiency by 13 percent when comparing the permitting

efficiency under the prior Money-Back Guarantee policy.

The Office of Oil and Gas Management remains committed to conducting permit reviews in a

manner that is protective of our environment; while also conducting such reviews in a timely

manner as directed by the “Permit Review Process and Permit Decision Guarantee.”

INSPECTIONS:

Another important responsibility of DEP’s Office of Oil and Gas Management is to conduct

rigorous inspections at oil and gas sites across the state. Inspections at well sites are necessary

to ensure that permit requirements are achieved at the actual well sites. In response to

enhanced oversight and in conjunction with the notification requirements contained in the

2012 Oil and Gas Act, the Office of Oil and Gas Management has significantly increased the

number of inspections conducted at conventional and unconventional well sites. Likewise, DEP

has increased the number of its inspectors since 2009 to its current level of more than

80 inspectors.

As depicted in the bar chart on the following page, the total number of all well inspections has

steadily increased from 2008 through 2012; and remained steady in 2013.

In 2008, the Office of Oil and Gas Management conducted 1,262 inspections of 377

unconventional wells. By 2012, the number of inspections increased to 12,680 inspections of

4,859 unconventional wells. This reflects an order of magnitude increase in the number of

inspections that were conducted during this five-year period. The inspection rates remained

steady during 2013 with 12,391 inspections of 5,559 unconventional wells.

In 2008, the Office of Oil and Gas Management conducted 10,058 inspections of 7,143

conventional wells. By 2012, the number of inspections increased to 11,762 inspections of

7,765 unconventional wells. The inspection rates remained steady during 2013 with 11,713

inspections of 7,808 conventional wells.

While the number of inspections of conventional wells has increased over time since 2008, the

significant increase in the number of inspections of unconventional wells, coupled with

inspections of oil and gas well pad sites and administrative inspections, has resulted in a

significant increasing trend of total oil and gas inspections over the past five years.

20 | P a g e

COMPLIANCE AND ENFORCEMENT:

The department has increased its efforts over the past several years to ensure improved

regional consistency and continuous improvement in its compliance and enforcement programs

that are administered by DEP’s district oil and gas offices.

It should also be noted that the number of violations as a result of DEP’s inspection efforts has

been steadily decreasing over this same time period. The record suggests that DEP’s compliance

initiatives and outreach to unconventional operators are working as compliance rates are

improving.

Compliance Trends

The following graph indicates that the number of violations observed at unconventional oil and

gas well sites has been decreasing throughout Pennsylvania since 2010. From 2010 until 2013,

the number of violations at unconventional well sites decreased from 1,281 to 512. This

represents a reduction of more than one half the number of violations during this four-year

time frame. The number of enforcement actions has proportionally increased by percentage

during this same time period. This suggests that although overall compliance by unconventional

oil and gas operators has been improving, DEP has continued to vigorously pursue enforcement

actions as warranted.

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

22,000

24,000

26,000

28,000

2008 2009 2010 2011 2012 2013

Compliance Inspections Total Inspections Unconventional Inspections Conventional Inspections Well Site & Administrative Inspections

21 | P a g e

STRAY GAS INVESTIGATIONS:

One of the most important issues associated with oil and gas exploration and development

pertains to the effective engineering and construction of oil and gas wells. If wells are not

constructed or operated properly, there is a potential risk for natural gas to escape from the

well bore and into subsurface geologic strata or groundwater sources. If this happens, it is

called “stray gas” migration and the responsible operator is required by law to correct or

mitigate the situation.

Through efficient communication and collaboration with district oil and gas operations staff,

the Office of Oil and Gas Management has created a database of stray gas case investigations.

The information compiled dates back to 1987 and allows for critical data trend analysis and

some level of forensic work aimed at identifying causes and solutions in the rare instances

when operating oil and gas wells in the state have been found to not provide adequate

protection of water resources. This invaluable summary of information helps to direct policy

decisions and inform the development of focused new regulations.

Following is a graph that identifies the number of stray gas investigations conducted by DEP

from 2008 through 2013. For comparison sake, the graph also includes the investigations that

were conducted by each district oil and gas office.

0

200

400

600

800

1,000

1,200

1,400

2010 2011 2012 2013

Unconventional Shale Wells Compliance Violations and Enforcements

Unconventional Violations Unconventional Enforcements

22 | P a g e

Stray gas investigations are primarily driven by complaints from individuals who believe their

property may have been impacted by gas migrating into a water well or surface water body

such as a pond, stream or wetland. Since natural gas is colorless and odorless, the most

common indicators suggesting potential gas migration are the appearance of many tiny

“bubbles” (i.e., effervescence) in tap water drawn from the supply or off-gassing from a water

well or surface water body; or the sound of “knocking” in a water well that results when

infiltrating gas disturbs the well pump. In some cases, an initial review of the complaint may

reveal that the condition is, in fact, not related to gas migration. Such cases are tracked and

responded to via DEP’s Complaint Tracking System and are not cataloged as gas migration

events. In other cases, the investigation might require a lengthy series of site visits and multiple

rounds of lab analyses to reach a determination concerning the alleged gas migration event. It

could take many months or even years to reach a final determination.

After a thorough inspection, review of all laboratory analyses, an assessment of construction

and integrity data and a geological assessment, DEP renders a determination regarding the

event. The determination may result in either of the following findings:

Positive Determination: The migration of gas is confirmed and is the result of

hydrocarbon exploration and production activities. These findings are either

documented through issuance of an official determination letter to the complainant, or,

if no formal complaint is filed with DEP, the department documents which water

0

5

10

15

20

25

30

35

40

45

2008 2009 2010 2011 2012 2013

# o

f In

vest

igat

ion

s

Year

Number of Stray Gas Case Investigations by District: 2008 to 2013

SW District NW District Eastern District Total

23 | P a g e

supplies or residences have been impacted as a result of hydrocarbon exploration and

production activities and responds as appropriate.

Negative Determination: The presence of gas is either confirmed, but cannot be

positively attributed to hydrocarbon exploration and production activities or, in certain

cases, no gas is found.

There are generally two classifications of natural gas – “biogenic gas” and “thermogenic

gas”. Biogenic gas is formed by microbial decomposition of organic matter nearer to the

earth’s surface; whereas, thermogenic gas is formed when organic matter in

sedimentary rock is subjected to heat and pressure deep under the earth’s surface. In

some cases, Negative Determinations result when it is found that the type of gas

detected is “biogenic” rather than “thermogenic” gas that is targeted during natural gas

exploration and production activities. However, both gas types are found to exist

naturally in portions of Pennsylvania’s fresh groundwater system.

The following bar chart identifies the number of confirmed Positive Determinations from 2008

through 2013 for gas migration cases investigated by DEP. If a stray gas investigation does not

result in a confirmed Positive Determination, then it is not included in this bar graph. If a stray

gas investigation extends from one calendar year into a future calendar year, the confirmed

positive determination is reported in the year in which the investigation was initiated. DEP is

currently conducting several investigations that are expected to be completed during 2014.

The Pennsylvania Oil and Gas Regulation at 25 Pa. Code, Chapter 78, Subchapter D provides

specific requirements for the construction of oil and gas wells including, but not limited to,

casing and cementing practices. It also details requirements that operators must fulfill when a

potential gas migration incident has occurred. The department updated these subsurface

0

5

10

15

20

25

30

35

2008 2009 2010 2011 2012 2013

# o

f N

ew

Cas

es

Year

Number of Confirmed Stray Gas Migration Cases: 2008 to 2013

24 | P a g e

activities regulations to strengthen well construction practices that are required of operators

and place many of the responsibilities of investigating stray gas incidents on the oil and gas

industry. The revised rulemaking went into effect on Feb. 5, 2011. The department intends to

further strengthen these subsurface activity regulations through a subsequent rulemaking

package that it will initiate in 2014.

The bar chart above identifies the number of drinking water supplies impacted by confirmed

gas migration events. It is not uncommon for a single confirmed gas migration to affect multiple

water sources.

The Oil and Gas Act of 2012 presumes that an operator of an unconventional well is responsible

for pollution of a water supply when the source is located within 2,500 feet of the

unconventional well and when the pollution occurred within 12 months of the drilling,

stimulation or completion of the unconventional well. Unless, the operator can successfully

demonstrate that the pollution was not caused by its actions based on specific statutory

defenses, the operator must restore or replace the affected water supply with an alternate

water source.

REGULATORY AND POLICY DEVELOPMENT:

When the 2012 Oil and Gas Act was signed by Gov. Corbett on Feb. 14, 2012, it represented the

first major overhaul of the commonwealth’s Oil and Gas Act in 28 years. The act became

effective within 60 days of passage, which required the Office of Oil and Gas Management to

prepare new forms, standard operating procedures, guidance documents, policy statements

and Frequently-Asked-Question responses. DEP provided training to the regulated community

0

10

20

30

40

50

60

2008 2009 2010 2011 2012 2013

# o

f W

ater

Su

pp

lies

Year

Number of Impacted Water Supplies Associated with Confirmed Gas Migration Cases: 2008 to 2013

25 | P a g e

and the public on the new documents. The department successfully met that challenge by

working to define specific planning and containment requirements of the 2012 Oil and Gas Act

and conducting a series of outreach webinars to inform and train the public and regulated

community on the new requirements.

Regulatory Revisions for Surface Activities

DEP’s Oil and Gas program has devoted more than two years to developing a proposed

rulemaking to amend the existing oil and gas regulations (25 Pa. Code, Chapter 78,

Subchapter C) to specifically address surface-related activities at well sites in Pennsylvania. In

particular, these regulations will address the requirements for pits, impoundments, temporary

site containment, spill reporting and cleanup, site restoration, pipelines, horizontal directional

drilling, water management plans and the road spreading of brine from conventional well sites.

This rulemaking also serves to codify environmental provisions mandated by the 2012 Oil and

Gas Act.

A draft proposed rulemaking was presented to the Oil and Gas Technical Advisory Board on five

separate occasions. The Oil and Gas Program also received input from multiple stakeholder

groups including oil and gas operators/associations, the environmental community,

municipalities and the public.

On Aug. 27, 2013 this proposed rulemaking was presented to the Environmental Quality Board

(EQB) for consideration and was approved for publication and a 60-day public comment period.

The public comment period opened on Dec. 14, 2013 and was initially scheduled to close on

Feb. 12, 2014. The EQB initially announced that it would host seven public hearings throughout

each of the regions of Pennsylvania; however, to promote a greater level of public

participation, the EQB and DEP in an unprecedented manner extended the public comment

period for 30 additional days to close on March 14, 2014 and added two more public hearings.

In addition to the public hearings, the department hosted two webinars to brief the public on

the key provisions of the proposed rulemaking and inform the public how comments can be

submitted to the department.

The department will consider all comments received as it proceeds with the development of

this final rulemaking. It is anticipated that a proposed final rulemaking will be presented to the

Oil and Gas Technical Advisory Board in 2014.

Regulatory Revisions for Unconventional Well Permit Fees

As required by the Oil and Gas regulations, DEP prepared a three-year report on its fee

structure and developed a proposed rulemaking to address the disparity between program

income and program costs. This rulemaking proposes to amend the existing oil and gas

regulations (25 Pa. Code, Chapter 78, Subchapter B) to modify the unconventional natural gas

26 | P a g e

well permit fee structure from a sliding fee schedule based on well bore length to a fixed fee of

$5,000 for horizontal unconventional wells and $4,200 for vertical unconventional wells. The

current permit structure for conventional wells remains unchanged.

The proposed rulemaking was presented to the Oil and Gas Technical Advisory Board at its April

23, 2013 meeting. DEP presented the proposed rulemaking package to the EQB on July 16, 2013

and the board voted unanimously to proceed with publication for a 30-day public comment

period. The proposed rulemaking was published in the Pennsylvania Bulletin on Sept. 14, 2013

and closed on Oct. 15, 2013. The department received comments from six commentators and

prepared a Comment and Response Document. On Jan. 21, 2014, EQB adopted the final

rulemaking and DEP anticipates this rulemaking to become effective mid-2014.

Emergency Response at Well Sites

On Jan. 26, 2013, the EQB adopted a final-form rulemaking under the authority of Act 9 of

2012, that required DEP and the Pennsylvania Emergency Management Agency to adopt

emergency regulations directing the operators of all unconventional wells in Pennsylvania to

take certain actions for emergency response. The requirements of the regulation include

development and submission of emergency response plans, obtaining and providing 911

addresses and GPS coordinates for access roads to unconventional well sites and posting of

standard signage at the entrance to access roads to those sites. These regulations implement

several recommendations of the Governor’s Marcellus Shale Advisory Commission.

Addressing Spills and Releases at Oil and Gas Well Sites - Final Guidance

DEP developed a draft technical guidance document titled “Addressing Spills and Releases from

Oil & Gas Wells and Related Operations.” This policy was developed to facilitate a consistent

and uniform general response by those working in and for the oil and gas industry to respond to

spills and releases related to oil and gas well operations. The policy addresses expectations for

1) spill prevention and response planning, 2) notification to DEP in the event of a spill or

release, 3) remediation of the spill or release to meet a standard established by the Land

Recycling and Environmental Remediation Standards Act and the required administrative

process or alternate process, and 4) restoration and re-vegetation of areas impacted by spills or

releases (particularly chlorides). The department discussed the draft guidance with the Oil and

Gas Technical Advisory Board in October 2011 and February 2012.

Notice of the draft technical guidance was published in the Pennsylvania Bulletin on April 14,

2012, with a 30-day public comment period. DEP received approximately 67 unique comments

from 12 individuals, companies, organizations and associations. The department considered

these comments, prepared a Comment-and-Response document and made several changes to

the policy. In addition, the draft final guidance parallels section 78.66 of the draft proposed

Surface Activities rulemaking at 25 Pa. Code, Chapter 78, Subchapter C. The final guidance was

27 | P a g e

discussed at the Feb. 20, 2013 TAB meeting and the department published notice of this final

guidance document in the Pennsylvania Bulletin on Sept. 21, 2013.

INNOVATIONS:

Mechanical Integrity Assessments (Quarterly Inspections)

When an operator constructs a well to deliver oil and gas from deep beneath the ground to the

surface, it is critical that the well be constructed in a manner that prevents communication

between the well bore and shallower sub-surface geologic strata. A properly constructed well

also helps to prevent the migration of oil and gas into groundwater sources that supply drinking

water wells.

To ensure well construction materials are functioning as intended over the life of the well,

Pennsylvania’s Oil and Gas Regulation (25 Pa. Code, Chapter 78, Section 78.88) includes

requirements for regular inspections of the well components accessible at the surface.

Specifically, operators are required to conduct quarterly inspections to ensure all operating

wells are in compliance with well construction and operating standards described in the

regulations. If wells are identified as not in compliance, the responsible operator is required to

notify DEP and take corrective actions to repair or replace defective equipment or mitigate any

excess pressure on the surface casing strings through which gas is being produced.

During 2013, the DEP’s Office of Oil and Gas Management developed a Mechanical Integrity

Assessment inspection form and instructions along with supporting guidance documents and

training videos. These tools are designed to facilitate the collection of electronic well integrity

data during the quarterly monitoring activities specified in 25 Pa. Code, Chapter 78, Section

78.88. Additionally, the Office of Oil and Gas Management conducted five industry training

sessions throughout the state in 2013. These events were well attended by oil and gas

operators, with nearly 300 individuals registered.

The quarterly inspection program began in the fourth quarter of 2013. The first annual

inspection report, consisting of quarterly inspection data for the 2014 calendar year, must be

submitted to the department by February 2015.

Oil and Gas GIS Map

On Dec. 19, 2013 DEP announced the release of a new online Oil and Gas Well Mapping Tool

that provides convenient access to statewide well data. This tool serves as a one-stop-shop in

making information about permitted wells available to the public on a graphical platform. This

is the first step in a process of linking all associated information regarding individual oil and gas

wells such as well records, completion reports and well plat information in a user-friendly GIS

format. This tool is available to the public on the DEP website at www.dep.state.pa.us (Select

“Oil and Gas”, then choose “Oil and Gas Reports”).

28 | P a g e

Online Public Comment System

DEP’s Bureau of Information Technology developed an online public comment tool to more

efficiently receive all public comments and effectively prepare responses to those comments.

Previously, public comments were accepted by way of e-mail and in hardcopy through the

U.S. Postal Service. This tool offers commentators an additional option of submitting their

comments electronically so that DEP can more effectively assemble, track and respond to public

comments. This tool was launched on Dec. 14, 2013 to accept comments received during the

90-day public comment period for the Chapter 78, Subchapter C (oil and gas surface activities)

proposed rulemaking. The Online Public Comment System will be used by DEP to accept public

comments for other future rulemakings.

Partnerships and Research

U.S. Geological Survey

Working with the United States Geological Survey (USGS), the Pennsylvania Geological Survey,

and conventional operators in northwestern Pennsylvania, DEP’s Office of Oil and Gas

Management staff have helped coordinate agreements that will grant the USGS and the

Pennsylvania Geological Survey access to conventional well sites in order to conduct borehole

geophysical logging. These logs will help identify the base of fresh groundwater and shallow

gas-bearing zones in portions of the state where historical oil and gas drilling has been prolific,

yet subsurface data remain sparse. The efforts will contribute to a greater understanding of

local hydrogeologic systems among researchers and interested members of the public while

helping to inform oil and gas operators during the development of casing and cementing plans.

Pennsylvania Geological Survey

DEP’s Office of Oil and Gas Management staff collaborated with DCNR’s Pennsylvania

Geological Survey to co-author an open file water resources report that reviews the

groundwater and petroleum resources of Sullivan County. Published in 2013, this report

discusses in detail the baseline water quality and hydrogeology within the county. It also

examines historical oil and gas development throughout a broader region of northeastern

Pennsylvania while discussing many aspects of stray gas migration.

WHAT’S NEW FOR 2014?

Comprehensive Oil and Gas Development Radiation Study

Generation of Technologically Enhanced Naturally Occurring Radioactive Material (TENORM) in

solid waste generated by the oil and gas industry has increased in Pennsylvania over the past

several years due, in part, to the expansion of unconventional natural gas production.

In January 2013, DEP announced it would undertake a study to assess levels of naturally

occurring radioactivity in the by-products associated with oil and natural gas development. The

29 | P a g e

purpose of this study is to develop a final report with findings that are scientifically-based to

determine whether any further actions are warranted by DEP to ensure the continued

protection of the public and Pennsylvania’s environment.

On April 4, 2013, DEP released a detailed project scope and sampling and quality assurance

plans for this comprehensive study. This represents the most comprehensive study of its kind in

Pennsylvania and perhaps the nation. DEP is managing and funding the study which is expected

to be completed and published in 2014.

Mechanical Integrity Assessments (Defective Cement)

In addition to well construction standards, Pennsylvania’s oil and gas regulations also require

that an operator report defective wells (i.e., defective, insufficient or improperly cemented

casing) to DEP within 24 hours of discovery and correct the defect or submit a corrective action

plan to DEP within 30 days describing how it intends to address the defect. Wells that are

inspected and are found to exhibit defective cement, usually characterized by the presence of

gas flowing through cement, must be remediated or evaluated to ensure continuing integrity.

DEP has been in discussions with operators about what specifically constitutes “defective

cement” and the manner in which to most appropriately repair, replace or mitigate the

situation to the satisfaction of the department. A casing and cementing practices workgroup

was formed that includes members of DEP’s Office of Oil and Gas Management, the Oil and Gas

Technical Advisory Board and various oil and gas operators. Detailed flow charts and draft

guidance have been developed and presented to the workgroup for review and comment and

now serves as an interim corrective action plan that operators may choose to follow to address

any occurrences of defective cement.

In early 2013, DEP’s Oil and Gas Program developed a draft form for the voluntary submission

of well integrity data to assist with defining conditions that constitute “defective cement.”

During 2014, the Office of Oil and Gas Management intends to clearly define “defective

cement” and finalize the process for efficiently mitigating its occurrence.

Regulatory Revisions for Subsurface Activities

The Oil and Gas Division of Well Plugging and Subsurface Activities intends to advance a draft

proposed rulemaking during 2014 to update Subchapter D of 25 Pa. Code, Chapter 78.

The rulemaking will include revisions to Subchapter D that regulate the drilling, casing,

cementing, completion, operation, production and plugging of wells in Pennsylvania as well as

other subsurface activities associated with oil and gas exploration and development.

Specifically, the regulatory amendments will include revisions to well plugging procedures as

well as venting and alternative methods.

30 | P a g e

Whereas the Chapter 78, Subchapter C proposed rulemaking pertains mainly to aspects of

drilling related to “surface” activities, the Subchapter D proposed rulemaking will focus on

aspects of drilling related to “subsurface” activities.

This rulemaking will also implement relevant environmental provisions mandated by the 2012

Oil and Gas Act.

Long-Term Air Quality Monitoring Study

DEP is currently conducting a long-term study to measure air quality at sites that could

potentially be impacted by nearby natural gas compressors and processing stations. The

monitoring sites were selected near permanent facilities that have been shown to be a source

of methane, nitrogen oxides, carbon monoxide and hazardous air pollutant emissions. The

samples collected during the study are subjected to rigorous quality-assurance and data

validation criteria. A final report is expected to be released in 2014.

DEP previously conducted three short-term sampling studies in various drilling regions of the

state and detected no levels of any pollutant that would violate federal ambient air quality

standards or would be expected to cause air-related health issues.

Legacy Oil and Gas Map Initiative

DEP is developing a “Legacy Oil and Gas Map” tool that will overlay and display all available

historical oil and gas maps utilizing a web-based GIS platform. DEP has already developed a

similar tool to display legacy mining maps and this represents the next step in making map

information available to the public and the regulated community.

DEP has assembled an inventory of about 2,000 maps and will be advancing this initiative in

order to make the data on these maps accessible during 2014. This is expected to be a multi-

year initiative and as additional maps are acquired they will be added to the Legacy Oil and Gas

Map tool.

Pipeline Safety and Inspections

DEP inspects well sites and natural gas gathering pipelines; however, rugged terrain associated

with linear pipeline development in remote mountainous areas of Pennsylvania often presents

significant challenges in reaching long stretches of gathering pipelines for inspection purposes.

In 2013, the Office of Oil and Gas Management initiated a pilot project using department-

owned all-terrain vehicles to access remote natural gas gathering pipeline operations to

conduct inspections. This project was designed to monitor and inspect pipelines prior to, during

and after construction operations to assess compliance with the Department’s Erosion and

Sediment Control General Permits and other environmental laws and regulations.

31 | P a g e

The initial pilot project was successful; therefore, DEP plans to expand this initiative in 2014 to

target additional pipeline locations. The department also intends to continue existing inter-

agency communication, cooperation and partnering with the Pennsylvania Fish and Boat

Commission, Pennsylvania Game Commission and PUC during the coming year.

In addition, DEP intends to partner with PUC in 2014 to form a separate “Joint Pipeline Working

Group” to examine and evaluate the current safety conditions and practices associated with the

construction of gas pipelines in Pennsylvania.

A CULTURE OF CONTINUOUS IMPROVEMENT:

DEP is never satisfied to rest on past achievements; rather it continually seeks opportunities to

improve its programs, practices and policies. DEP’s culture of continuous improvement is

clearly reflected in how it has responded to the wide-spread interest regarding the

development of unconventional natural gas resources in Pennsylvania.

As unconventional drilling has increased over the past several years, DEP has taken proactive

measures to strengthen and enhance its regulatory framework to ensure responsible oil and

gas development that is protective of Pennsylvania’s citizens and environment. DEP expects

world-class performance from all oil and gas operators that engage in business in the state, and

DEP holds itself accountable to these same standards.

This annual report has shared specific examples of how DEP and the Office of Oil and Gas

Management has developed and implemented new and improved methods of regulating the oil

and gas industry in Pennsylvania. Our work is not done. DEP’s Office of Oil and Gas

Management embraces the challenges it is faced with to advance the mission of the

department in 2014.

An Equal Opportunity Employer

5/2014